Move to tax year basis
If you are a sole trader or an individual partner in a partnership, from 2024/25 onwards, you will be taxed on the profits for the tax year (the tax year basis) rather than, as now, on the profits for the accounting period ending in the tax year (the current year basis). If you prepare your accounts to a date other than 5 April or 31 March (which is treated as equivalent to the tax year) or a date in between, you will need to apportion your profits from two accounting periods to arrive at the profits for the tax year.
To move from the current year basis to the tax year basis, the 2023/24 tax year is a transitional year. The profits taxed in 2023/24 are those for the period from the end of the basis period for 2022/23 (i.e. the accounting period ending in the period from 6 April 2022 to 5 April 2023) to 5 April 2024. Where the accounting period does not align with the tax year, profits for more than 12 months may be taxable in 2023/24. Relief for any unrelieved overlap profits is also given in 2023/24. These are profits that were taxed twice in the early years or on a change of accounting date.
To prevent traders from being hit with a very high tax bill in 2023/24 without having the benefit of higher profits from which to pay the bill, the additional profits assessed in that year (i.e. those from the end of the previous accounting period to 5 April 2024, less any overlap relief) are spread over 5 tax years from 2023/24 to 2027/28 inclusive. Where this is not beneficial, an election can be made for profits not to be spread.